Maybe it’s a sandwich chain, or a price comparison website, or a bioscience breakthrough: but the start-up was your baby, and you’ve worked night and day to prove its potential. Now it needs capital to go to the next level — and you need liquidity for family needs, as well as a plan for long-term exit. Who do you turn to, and what questions should you ask?
Earlier in this series, Julian Cooper of Julius Baer told us that entrepreneurs need to think well ahead — and ‘meet the right people, the right lawyers, the right potential investors’. Simon Ward is a lawyer with Farrer & Co who acts for businesses backed by venture capital and private equity. ‘Entrepreneurs need to address “below the line” issues at an early stage: how to turn an owner-managed venture into a professional, risk-aware business that looks seriously investable. That could involve appointing a financial controller and experienced non-executive directors, securing key customer contracts and intellectual property, and reducing dependence on the founders, lest they move on — or, God forbid, get run over by a bus.’ He also notes that the founders themselves need tax and inheritance planning, which is of course where a wealth manager such as Julius Baer comes in.
Likewise Steve Barnett at the law firm Shoosmiths, with long experience advising investors and companies in the technology sector, talks about ‘getting organised ahead of time, with a clear head’. He also explains the crucial difference between bringing in venture capital and going to the private equity market. ‘VCs are likely to come in at an earlier, more speculative stage and take a minority interest: of course they want a return on their money but they also want to work collaboratively with founders, to see them carry their ideas through to success.’
Private equity comes in later — and it’s a sector that doesn’t always have a good press, because when applied to mature companies, it’s usually a matter of stripping costs to squeeze higher returns. But for investments of, say, £5 million to £50 million in entrepreneurial ventures, it’s more about injecting growth capital and offering founders an exit path.
Shani Zindel is a member of the investment team at Livingbridge, a mid-market private equity player that’s aiming to invest £1 billion in high-growth firms over the next five years. ‘If you’re selling to private equity, you’re no longer going to be in control,’ she warns. ‘You might stay on or you might part company but the relationship is always the key, and you need your own due diligence on that. These are the people who are going to take your business forward — so you need to feel they’re the right choice.’
But if the chemistry works, ‘I love that moment… when we know this is a business and management team we really want to be involved with, and the management team reach the same conclusion… A new partnership is born.’
Entries have closed for our Economic Disruptor of the Year Awards and we’ve got a galaxy of exciting stories of innovation from which to choose the shortlist. Watch this space!
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